Kohlschreiber, seeded fourth, also won this clay-court tournament in 2007. He saved seven of eight break points to capture his fourth title in his sixth ATP final.
His previous title also came in Germany -- last year's Gerry Weber Open in Halle.
"I improved from match to match, felt very well for the whole week and played good tennis," he said.
Kohlschreiber won more than $94,000 in prize money and a white convertible worth more than $73,000.
"I don't really know what I should say," he said. "I don't have as much experience of this as (Roger) Federer."
The third-seeded Cilic, who lost this final in 2010 to Mikhail Youzhny, won nearly $50,000.